FocusEurope PE spot prices surge on lack of availability

LONDON (ICIS)--Polyethylene (PE) spot prices are increasing as expectations of a price hike in January gain momentum, in spite of a fundamentally weak European market, sources said on Thursday.

“We are all talking ourselves into an increase in January,” said one large buyer.

Demand for spot product is not particularly high, according to sellers, but availability has tightened significantly, particularly for low density polyethylene (LDPE) and commodity C4 (butene added) linear low density polyethylene (LLDPE), and prices have risen substantially in the past two weeks.

LDPE is now sold above €1,350/tonne ($1,776/tonne) FD (free delivered) NWE (northwest Europe) in some cases. LLDPE C4 trades not far below. Both have increased by over €100/tonne, following a sharp drop between mid-October and mid-November.

“We have requests for LDPE but just can’t get hold of it,” said one seller.

PE availability has tightened considerably, and sources ponder on the reason for this lack of supply.

Europe is a net importer of C4 LLDPE, and port congestion in Saudi Arabia is thought to be a major contributory factor to the lack of product. The conversion of Switzerland-headquartered INEOS’s C4 LLDPE plant at Cologne, Germany, to metallocene linear low density polyethylene (MLLDPE) is also having an effect on supply.

LDPE production at SABIC’s plant at Wilton, in the UK, is said to have been down, but there has been no confirmation of this from the Saudi Arabia-based producer.

Swedish LDPE output has also suffered problems in the recent past, and the fact that PE production is estimated to be running at 75% in Europe clearly affects the overall availability throughout mainland Europe.

There has been talk of further cutbacks at the cracker and polymer level in Europe this week, due to poor demand. Spain-based Repsol’s cracker and associated polymer units at Sines in Portugal are said to have been brought offline because of weak demand. LDPE and high density polyethylene (HDPE) are produced at Sines.

HDPE prices are moving more slowly than LDPE and LLDPE, but here too prices are increasing. HDPE injection prices have moved up the most, while hikes on blowmoulding and film are more sedate.

In this sector, US-based Dow Chemical’s announcement of the closure of its 190,000 tonne/year plant at Tessenderlo, Belgium, has left some buyers of non-commodity grades scrambling for product next year, as the plant will no longer supply from January 2013.

Other HDPE players are confident that they will be able to secure volumes from Saudi Polymers’ new plant in Saudi Arabia. The unit has a HDPE nameplate capacity of 1.1m tonnes/year, but was taken offline on 10 November for technical reasons, however, and will remain shut for the rest of December. It is expected to resume production some time in January.

No producer has publicly announced a January increase, but there are many rumours in the market, suggesting that three-digit hikes might once more be on the cards.

“If prices go up in January, as we expect them to, I will give it two months before they are back down again,” said another buyer.

Producers complain that current margins are not sustainable, and that they need to improve them if they are able to continue to produce, as the principal price driver, naphtha, remains expensive.

“We can’t afford to be generous with our buyers,” said a PE producer. “We simply can’t afford to keep producing under current cost conditions.”

Expectations of a price increase in January have led to some traders seeking material from different sources. Product is on its way from the US for arrival in the new year.

Some players doubt that prices can rise much in January, as demand will be affected by holiday closures. These observers expect more of an upward push in February, when business returns to normal.

As with increases throughout 2012, sources agree that higher prices will be based on reduced supply, rather than any fundamental market strength.